What is the variance of the returns on this stock

Assignment Help Financial Management
Reference no: EM131339618

If the economy booms, Frank's Welding Supply stock is expected to return 19%. If the economy falls into a recession, the stock's return is projected at 5%. The probability of a boom is 80% while the probability of a recession is 20%. What is the variance of the returns on this stock?

Reference no: EM131339618

Questions Cloud

Ethical professional practice-confidentiality standard : The IMA Statement of Ethical Professional Practice includes a confidentiality standard that requires members to “keep information confidential except when disclosure is authorized or legally required.” Do you think there are any circumstances when yo..
What is the portfolio weight for stock in your portfolio : You own 40 shares of stock A, which has a price of $15 per share, and 200 shares of stock B, which has a price of $2 per share. What is the portfolio weight for stock A in your portfolio?
The remainder in a risk-free asset : What is the portfolio beta if 25% of your funds are invested in the market portfolio, 25% in an asset with twice as much risk as the market portfolio, and the remainder in a risk-free asset?
Reward to risk ratio-what is the expected return : Asset A has a reward to risk ratio of .075 and a beta of 1.5. The risk-free rate is 5%. What is the expected return on A? [reward to risk ratio = (expected return on A - risk-free rate)/beta]
What is the variance of the returns on this stock : If the economy booms, Frank's Welding Supply stock is expected to return 19%. If the economy falls into a recession, the stock's return is projected at 5%. The probability of a boom is 80% while the probability of a recession is 20%. What is the vari..
How the rate of discount that equalizes the two options : A high school graduate has to decide between working and going to college. If he works, he will work for the next 50 years of his life. If he goes to college, he will be in college for 5 years, and then work for 45 years. discuss how the rate of disc..
Two separate divisions : Swizer Industries has two separate divisions. Division X has less risk so its projects are assigned a discount rate equal to the firm's WACC minus .75 percent. Division Y has more risk and its projects are assigned a rate equal to the firm's WACC plu..
What is company cost of equity capital : David Ortiz Motors has a target capital structure of 30% debt and 70% equity. The yield to maturity on the company's outstanding bonds is 9%, and the company's tax rate is 40%. Ortiz's CFO has calculated the company's WACC as 10.26%. What is the comp..
Target capital structure : Shi Importers' balance sheet shows $300 million in debt, $50 million in preferred stock, and $250 million in total common equity. Shi's tax rate is 30%, rd = 6%, rps = 7.9%, and rs = 14%. If Shi has a target capital structure of 30% debt, 5% preferre..

Reviews

Write a Review

Financial Management Questions & Answers

  Planning to invest in a new dry cleaning machine

Tim Brown of Omega Drycleaners is planning to invest in a new dry cleaning machine worth $80,000. The life of the machine is estimated to be 12 years and at the end of this period the manufacturer will pay $10,000 for the old machine. The incremental..

  What is the net advantage to leasing

To finance some manufacturing tools it needs for the next 4 years, Waldrop Corporation is considering a leasing arrangement. Waldrop Corporation has no use for the machine beyond the expiration of the lease, and the machine has an estimated residual ..

  What is its sustainable growth rate

Rocky Sales, Inc., has current sales of $1,268,864 and net income of $203,018. It also has a debt ratio of 47 percent and a dividend payout ratio of 69 percent. The company’s total assets are $587,439. What is its sustainable growth rate? (Round answ..

  What is the market value of the firm prior to the recap

An all-equity business has 100 million shares outstanding selling for $20 a share. Management believes that interest rates are unreasonably low and decides to execute a leveraged recapitalization ( a recap). It will raise $1 billion in debt and repur..

  Equity fund with an expected risk premium

You manage an equity fund with an expected risk premium of 12.8% and a standard deviation of 42% The rate on Treasury bills is 3.4% Your client chooses to invest $75,000 of her portfolio in your equity fund and $75,000 in a T-bill money maiket fund W..

  Estimate for corporate cost of capital and cost of equity

What specific items of capital should be included in a corporate cost of capital estimate? Should historical (embedded) or new (marginal) values be used? Why? What is your final estimate for Southeastern’s cost of equity? Explain your answer. What is..

  Find the value of a bond maturing

Find the value of a bond maturing in 4 years, with a $1,000 par value and a coupon interest rate of 11% (5.5% paid semi-annually) if the required return on similar-risk bonds is 14% annual interest (7% paid semi-annually).

  These receipts to clear the banking system

Float Simon Corporation has daily cash receipts of $64,000. A recent analysis of its collections indicated that customers’ payments were in the mail an average of 3 days. Once received, the payments are processed in 2.5 days. After payments are depos..

  A zero coupon bond with a face value

A zero coupon bond with a face value of $1,000 is issued with an initial price of $475.00. The bond matures in 25 years. What is the implicit interest, in dollars, for the first year of the bond's life?

  Its assets with debt that has yield to maturity

What is a firm's WACC if the stock has a beta of 1.45, Treasury bills yield 5%, and the market portfolio offers an expected return of 14%? In addition to equity, the firm finances 30% of its assets with debt that has a yield to maturity of 9%. Assume..

  What is the risk-free rate of return

The expected return on HiLo stock is 14.65 percent while the expected return on the market is 13.5 percent. The beta of HiLo is 1.21. What is the risk-free rate of return?

  Use the risk premium approach

Based on the information below, calculate the weighted average cost of capital. Great Corporation has the following capital situation. Debt: One thousand bonds were issued five years ago at a coupon rate of 11%. They had 20-year terms and $1,000 face..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd